The Privatization Act, of 2023 was signed into law in October last year, providing a regulatory framework for privatisation of public entities to improve the efficiency and competitiveness of Kenya’s productive resources.
One of the main goals of the privatisation agenda is to encourage participation of the private sector in the economy by shifting the production and delivery of products and services to the private sector. This will generally require large capital investments, from private players looking to invest.
Therefore, before committing to the transactions, potential investors would want to ensure that they know exactly what they are buying into, what obligations they would be assuming and the economic benefits they would derive. What safety nets do they have if they choose to participate in the privatisation programme?
Having an independent supervisory body overseeing the implementation of privatisation programmes will promote proper management and accountability in privatisation deals, which is crucial for such significant transactions.
The privatisation programme
All privatisations will commence with the development of a privatisation programme outlining the entities marked for privatisation, the criteria which have been considered to determine which entities will be privatised, the timelines for the validity of the programme and the basis upon which the privatisations shall be undertaken.
This will serve as the initial blueprint for investors looking to invest in government-owned corporations, thus forming the base for their decision-making.
Requisite diligence procedures
The Act mandates all entities shortlisted for privatisation to maintain proper financial, legal and operational records. Such records are intended to facilitate decision-making by the investors.
Privatisation proposal
Once an entity is marked for privatisation, a privatisation proposal on the entity would be prepared stating the financial position of the entity to be privatised, the recommended method of privatisation and the estimated costs of implementing the proposed privatisation, among other considerations. If well executed, the proposal would also serve as a guide for investor decision-making as potential players would have visibility of the entire transaction from the onset to assess whether the same aligns with their strategy.
Other safety nets that potential investors would leverage on include the establishment of a dispute resolution mechanism for settling disputes relating to privatization and the requirement for target entities to ensure continuous compliance with their mandate during the privatization process.
The impact of privatization on the stakeholders may vary depending on the industry in which the identified entity operates and its operational circumference. On the plus side, if executed properly, privatization can lead to enhanced efficiency and increased foreign direct investment, which would have a positive impact on the economy, both in the short and long term.
On the flip side, we risk creating unfair competition and potential job losses. Therefore, for successful transitions, we should carefully consider the potential impact of privatization from an economic, social and political lens, where the rewards sought should be much greater than the associated risks. While we acknowledge that the Act has covered most of the key considerations for deal transactions, we can only hope that the provisions will be implemented to the letter, for the benefit of all the stakeholders involved.
Hellen Achieng is senior advisor at EY and Milly Mbedi is senior manager at EY.
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